Can UK newspapers still make profits for investors?

16th January 2012

The Guardian is slimmed down today. Out go some features and some feature writers while others are squashed more closely together. According to editor Alan Rusbridger, it's partly a reaction to changing reader habits – half apparently first look at the paper in the evening while breaking news comes in other modes such as onscreen or onphone.

And this relaunch is also a reaction to rising costs of paper, ink and production coupled with falling advertising revenues as publicity budgets both migrate online and shrink in the recession. The Guardian has lost much of its profitable local authority job advertising both to online and because many posts now no longer exist.

Taken on its own, the Guardian story is only of general interest to investors. There are no shares to buy as it is owned by the the Scott Trust. The Independent, Express and Telegraph titles are owned by wealthy individuals. You can, however, buy shares in the Mail (Daily Mail and General Trust), the FT (Pearsons), the Times (News Corp) and the Mirror (Trinity Mirror).

With precious few exceptions, newspaper circulation are down substantially, no matter how they are owned. There are some recent figures – not flattering for most – at journalism.co.uk. A Guardian article has more details while an Observer story brings out the general misery for printed newspapers as the Leveson Inquiry continues to point accusatory fingers at the excesses of the popular press. The Observer piece points out that the redtops (the tabloids) have suffered more the more upmarket titles.

Investors have now to decide whether managed decline in the printed newspapers universe is the best they can hope for. There is, firstly however, a largely ignored factor which impacts on both print and online and goes further than national newspapers. And that is England's libel laws as this extract from a forthcoming book by journalist Nick Cohen makes clear.

North Korea or Nirvana?

The UK is the North Korea of libel laws if you are writer or publisher but Nirvana for those who permanently tick the no-publicity box. They are some of the most restrictive in the world and apply to anything which is published in any way in this country. That includes parish magazines, national newspapers, broadcast items, websites, and social media. It also takes in learned journals, academic monographs, and stockbroker analysis. The libel clock restarts every time someone looks at a story online – even if it is 10 or 20 years old.

Here's an example – with the names redacted for legal reasons. Last summer, a UK financial site (not this one) wrote an article about a firm which had been involved in landbanking. This is buying agricultural land without planning permission and then convincing investors that as it will shortly gain a housing go-ahead, the £10,000 an acre farmland turns into a £150,000 value. Of course, there is no example of this ever being true – the £200m consumer detriment (probably an understatement) is flagged in this Daily Telegraph story.

The online article then said the firm had moved into carbon credit trading – read this warning from the FSA. The FSA then said that many firms were making this switch as investors wised up to landbanking. The article was well researched, based on a real life experience, while the firm itself refused to answer questions.

The article sent the firm's name soaring up the Google ratings within hours. The firm immediately called in the lawyers it used for landbanking transactions who fired off a complaint to the website.

The legal letter was a farrago of nonsense – the article, they said, had to be taken down because "their client was extremely angry" even though anger is not grounds for an action. It accused the writer of saying something which was actually beneficial to the carbon credit firm.

None of this mattered. The website did not have the financial wherewithal to fight a legal action and withdrew the story.

Nick Cohen's book shows how a Norwegian newspaper which had raised questions about the now bust Icelandic bank Kaupthing had to remove its story world wide because, although in Norwegian, it had been read by a tiny number in the UK, probably expatriate Norwegians. While the story was true and the warning was warranted, the Norwegian publication could not afford to defend itself in the UK.

While the internet disseminates more material to more people, it also makes it easier for ambulance chasing libel lawyers to contact companies criticised and attempt to gag articles. Pharmaceuticals regularly use UK libel laws (or the threat of using them) to remove material they dislike. The result is that investors are deprived of material including academic studies that would enable them to take a fuller look at, in this case, the prospects for a new drug. Instead, they have to depend on investor relations and public relations, both sanitised sources. Researchers now self-censor.

There are many other examples of how UK libel laws are detrimental to investors as they choke off investigation, inquiry and arguments. Defenders of these laws seem never to be able to say why the far more liberal press freedoms in the United States would be harmful in the UK (other than to lawyer p
rofits and the rich companies and individuals who gain protection). The fear of legal action leads to serious media gagging itself.

Newspapers can be profitable

But print media does not have to equal loss making as Italian newspaper Il Fatto Quotidiano demonstrates. Set up in 2009, the majority of its shares (70%) are owned by readers while the balance is owned by the newspaper columnists.[ No important choice can be made without the consent of the columnists as a 70% majority + 1 is needed to carry out decisions about the newspaper policy or editor election.

It is not just the ownership that is different as this history makes clear. The paper has "Credibility, independence, popularity". The success story obviously owes something to Italian media ownership and controls.

It is not unique. Preston's story adds mentions "the success (since its founding in 2009) of Il Fatto Quotidiano in Italy (straight facts, no spin)", the way Christian Van Thillo setabout reviving Belgian circulations since he took over the Persgroep concern, the rise of Fakt in Warsaw, and, most tellingly for investors the fact that Norway's Schibsted group is one of the UK analysts' best-buy media stocks.